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Auditing & Accounting Update

Auditing & Accounting Update

In this section, we provide brief updates on regulatory developments in auditing and accounting that may impact Japanese companies in the United States. Further discussion of the issues can be found in KPMG's Department of Professional Practice's Defining Issues.

Evaluating contract enforceability and termination clauses to determine the contract period

The FASB and IASB also provided a status update on following matters discussed at the July 18, 2014, meeting:

Evaluation of gross versus net revenue presentation for sales of goods and services in a virtual environment

Application of the sales-based and usage-based royalties exception to contracts containing licenses and other goods or services in conjunction with other issues relating to accounting for licenses of intellectual property

On October 22, 2014, federal regulators published a final risk-retention rule (Final Rule) that requires sponsors of securitized financial assets to retain a minimum of five percent of the credit risk unless certain exceptions are met. The Final Rule implements Section 941 of the Dodd-Frank Act, which is intended to encourage sound underwriting practices and to better align the interests of securitizers with investors in both public and private transactions.

In the 33rd annual Financial Executives International conference on current financial reporting issues held on November 17-18, 2014, the conference discussed developments at the FASB, SEC, and PCAOB. Panelists included representatives from standard setters, regulators, preparers, and accounting firms.

On December 1, 2014, the FASB began redeliberations and held a forum on financial disclosure to discuss the status of its Disclosure Framework project. A panel discussion included representatives from financial statement users, preparers, legal firms, auditing firms, and representatives from the FASB, SEC, and IASB. During redeliberations of the project, the FASB tentatively decided to revise its description of materiality in FASB Concepts Statement 8, Conceptual Framework for Financial Reporting – Chapter 1, The Objective of General Purpose Financial Reporting; and Chapter 3, Qualitative Characteristics of Useful Financial Information, to align it with a U.S. Supreme Court decision.

In December 2014, the FASB and Private Company Council issued guidance that gives private companies an alternative to include certain identifiable intangible assets in goodwill when applying purchase accounting in business combinations. This election also requires the private company to amortize goodwill under the previously issued goodwill alternative. The guidance is effective prospectively for in-scope transactions occurring in the first annual period beginning after December 15, 2015. Early adoption is allowed.

In January 2015, the FASB issued an Accounting Standards Update (ASU) that eliminates the concept of extraordinary items from U.S. GAAP as part of its simplification initiative. The ASU does not affect disclosure guidance for events or transactions that are unusual in nature or infrequent in their occurrence. The ASU aligns U.S. GAAP more closely with IFRS. Entities will continue to evaluate whether items are unusual in nature or infrequent in their occurrence for presentation and disclosure purposes and when estimating the annual effective tax rate for interim reporting purposes.

FASB Proposes Changes to Accounting for Income Taxes on Intercompany Transfers and Deferred Tax Classification

On January 22, 2015, the FASB issued proposed Accounting Standards Updates that would require entities to recognize the income tax consequences of intercompany asset transfers and classify all deferred tax assets and liabilities as noncurrent in a classified statement of financial position. The proposals, if finalized, would result in convergence with International Financial Reporting Standards on these topics

The Joint Transition Resource Group for Revenue Recognition (TRG) met for the third time on January 26, 2015, and discussed several issues related to the new revenue recognition standard. The FASB plans to make a decision about the effective date early in the second quarter of 2015, and will continue to meet with preparers, auditors, and financial statement users to complete their outreach. The Boards will hold a joint meeting in February to discuss potential clarifications on determining the nature of a license of intellectual property and the scope and application of the sales- and usage-based royalties exception and applying the distinct in the context of the contract criterion.

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.